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Real Estate vs. Stocks: What Trump Can Teach Us About Investing

Is real estate or the stock market a better investment? Of course, this is an apples-to-oranges comparison, but the argument never ceases.

Many pure real estate investors will rarely, if ever, touch a stock or even a bond because they prefer tangible investments and the steady income that real estate can produce. Investors like myself who favor the stock market — and never want to be awakened in the middle of the night over a leaky roof — stay away from owning rental property. Both sides argue that theirs is the better way to invest.

Let’s look at one of the best-known businessmen of our time, Donald Trump, to see how his wealth grew with real estate. As columnist Joe Nocera wrote in The New York Times last week, Trump’s record is mixed. The son of a wealthy real estate developer, Trump was often bailed out by his family, and there were several times when Trump properties declared or came close to declaring bankruptcy. These setbacks demonstrate how challenging real estate investing can be, even for those very experienced in the field.

It’s also risky. As Trump grew older (and wiser), he became more risk averse. Instead of building new properties, he managed them, licensed his name and became a reality TV star.

Today Trump claims to be worth $8 billion, a lot of money. But what if he had put his money in the stock market rather than real estate. Nocera looked back at Trump’s net worth in 1988 and calculated that if Trump had invested that money in the S&P 500, he would be worth $13 billion now. So, he suggests that Trump’s real estate investmentscost him $5 billion.

But who are we kidding? If you had $8 billion, would you really care about having $5 billion more? I certainly wouldn’t. And you don’t become “The Donald” by investing in the boring old stock market.

So whether real estate or the stock market is a better investment is still not easy to answer. Perhaps the biggest distinction between these two investments is that stocks are more volatile, which is a key reason for their superior returns. On the other hand, real estate is costly to maintain, as one of my client’s found out recently when the rental property she inherited needed nearly $10,000 in repairs.

Some of my smartest clients own real estate, stocks and bonds. They know that each investment will rise and fall, but they are confident that they will do well in the long term. And for a person like me, who doesn’t want to own physical properties, there are ways to invest in real estate through the stock market, an attractive alternative. You can own shares of office parks, retail shopping centers and health care facilities — and never lift a hammer.

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